capital markets union (CMU)

ESMA Writes to European Commission on Delaying Review of Certain MiFID II Transparency Requirements

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On June 25, the European Securities and Market Authority (ESMA) published a letter (dated June 17) sent by Steven Maijoor, ESMA Chair, to Olivier Guersent, European Commission Director General for Financial Stability, Financial Services and Capital Markets Union (CMU), on the annual review required by Article 17 of Commission Delegated Regulation (EU) 2017/583 on transparency requirements for non-equity instruments (RTS 2).

The letter follows up a previous letter (dated January 16) sent to the Commission relating to the review reports on the MiFID II Directive and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR). In that letter, ESMA raised the issue of carrying out the annual review of the operation of certain transparency requirements for bonds and derivatives, as required by Article 17 of RTS 2. A positive assessment by ESMA can lead to a legislative change subjecting more bonds, and larger trade sizes in bonds and derivatives, to real-time transparency.

ESMA considers that the outstanding uncertainties on the time and conditions of Brexit do not allow for an adequate assessment at this time. Including or excluding UK data from the assessment would have a fundamental impact on the results, and any decision whether to include UK data would depend on whether the UK is still a member of the EU at the time any legislative change would take effect. In addition, Brexit will likely affect liquidity in bond and derivative markets and the value of the assessment will be limited if it is carried out before these effects have materialized.

European Commission Mid-Term Review of CMU Action Plan: Financial Services Aspects

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On June 8, 2017, the European Commission published a communication on the mid-term review of the capital markets union (“CMU“) action plan (COM(2017) 292). This follows the action plan published by the Commission in September 2015, which set out its proposed initiatives relating to the establishment of the CMU, and the consultation paper published by the Commission in January 2017, which sought targeted input on revisions to the CMU action plan that would feed in to its mid-term review of the action plan.

The purpose of the mid-term review is to set out an additional set of actions that complement the initiatives laid down in the action plan that have not yet been completed. It consists of:

  • Initiatives that follow on from completed work announced in the action plan:
    • The Commission has confirmed that it intends to proceed with legislative proposals on (i) the Pan-European Personal Pension Product (PEPP); (ii) conflict of laws rules for third-party effects of transaction and securities and claims; and (iii) an EU framework for covered bonds.
    • The Commission also intends to proceed with further work on initiatives relating to commitments announced in the action plan, including (i) amendments to the Solvency II Delegated Regulation ((EU) 2015/35); (ii) recommendations on private placements; (iii) communication on a roadmap for removing barriers to post-trade market infrastructure; and (iv) communication on corporate bond markets.
  • New priority initiatives intended to strengthen the CMU action plan:
    • The initiatives relate to issues including (i) the functioning of the European Supervisory Authorities (ESAs); (ii) prudential treatment of investment firms; (iii) Fin Tech; (iv) non-performing loans (NPLs); and (v) cross-border investment funds.

The Annex to the mid-term review contains a consolidated list of the CMU initiatives and the proposed timings for those initiatives.

European Commission Adopts Delegated Regulation Amending Solvency II Delegated Regulation On Infrastructure Corporates

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On June 8, 2017, the European Commission adopted a Delegated Regulation amending the Solvency II Delegated Regulation ((EU) 2015/35) concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (C(2017)3673 final). An impact assessment and executive summary were published alongside the Delegated Regulation.

The Solvency II Delegated Regulation was amended, with effect from April 2016, to provide for appropriate risk calibrations for qualifying infrastructure projects, but not infrastructure corporates. EIOPA submitted a report to the Commission in June 2016, which set out technical advice on infrastructure corporates and recommended several changes to the previous treatment of infrastructure projects. This included amendments to the definition and qualifying criteria for infrastructure projects to avoid inadvertent exclusion of investments in those projects with a better risk profile.

The amendments to the Delegated Regulation will reduce the capital charges attached to investments by insurance companies in infrastructure companies. The aim is to remove regulatory barriers to investment opportunities in infrastructure that fulfill a number of criteria and are considered to have a better risk profile. The amending Delegated Regulation forms part of the Commission’s wider efforts on capital markets unions (CMUs) to support insurers in their role as long-term investors in the EU economy.

It is now for the Council of the EU and the European Parliament to consider the amending Delegated Regulation. Should neither the Council nor the Parliament object to the amending Delegated Regulation, it will be published in the Official Journal of the EU (OJ). It will enter into force on the date following its publication in the OJ and will apply from that date.

European Commission to Publish CMU Midterm Review on June 7, 2017

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On May 18, 2017, Ugo Bassi, Director of Financial Markets, European Commission DG FISMA, confirmed that the Commission will publish its midterm review of the capital markets union (“CMU“) on June 7, 2017.

Mr. Bassi stated that the review would contain an action plan for “CMU 2.0” and would announce a number of additional initiatives. These initiatives include measures to make it easier to sell funds cross-border using passporting mechanisms and to strengthen supervisory powers at the EU level, potentially through increased supervisory powers for ESMA. The Commission will adapt the initiatives envisaged under the CMU to reflect the UK’s decision to leave the EU.

European Commission Republishes CMU Report on Addressing National Barriers to Capital Flows

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The European Commission has republished a report as part of its Capital Markets Union (CMU) initiative on addressing national barriers to capital flows.

The European Commission originally published the report in February 2017, but later removed it from its website. The European Commission stated that it was made aware of certain inaccuracies, mainly due to incomplete or conflicting information, and so decided to adopt an amended version. The majority of the changes relate to the removal of references to specific member states.

In the report, the European Commission sets out the initial findings of its expert group of representatives of member states on national barriers to cross-border capital flows and the steps that the Commission expects member states to take to address them. The issues highlighted include barriers to the cross-border distribution of investment funds, national approaches to crowdfunding and residence requirements on managers of financial institutions.

European Commission Consults on CMU Mid-Term Review

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On January 20, 2017, the European Commission published a consultation paper requesting targeted input on revisions on the capital markets union (“CMU“) action plan, together with frequently asked questions on the consultation.

The Commission intends to publish its mid-term review of the CMU action plan in June 2017. The aim of the review is to take stock of the progress towards implementing the action plan, to reframe actions in light of new developments and to add new measures to the action plan. The CMU action plan was published in September 2015, and it set out the Commission’s proposed initiatives for the establishment of the CMU.

In the consultation, the Commission seeks views from stakeholders on potential revisions to the action plan on any additional actions that could:

  • Improve financing for innovation, start-ups and non-listed companies.
  • Improve the ability of companies to enter and raise capital on public markets.
  • Foster long-term infrastructure and sustainable investment.
  • Foster retail investment.
  • Strengthen banking capacity to support the wider economy.
  • Facilitate cross-border investment.

The consultation sets out the current position of the CMU initiatives already underway and the expected timings for their next steps, where applicable.

The deadline for responses is March 17, 2017. The Commission will evaluate the responses and produce a summary feedback statement. It will also hold more focused roundtable discussions on small and medium enterprises, access to finance, retail investigator engagement and institutional investment.

European Commission Establishes Expert Group on Sustainable Finance

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On October 28, 2016, the European Commission published a decision creating a high-level expert group (“HLEG“) on sustainable finance in the context of the capital markets union (“CMU“).

The group is to have the following tasks:

  • Submitting to the Commission a set of policy recommendations that set out the scale and dimensions of the challenges and opportunities that sustainable finance presents, and recommending a comprehensive program of reforms to the EU financial policy framework. The group is to explore operational steps that financial institutions and supervisors should take to protect the stability of the financial system from environmental, social and governance risks. The accompanying press release suggests that this policy road map is due to be completed by the end of 2017.
  • Engaging in structured communication and advocacy towards interested parties about its work on sustainable finance.

Up to 20 senior experts will make up the group. They will commence work in January 2017. A call for applications for the selection of members of the group has been launched and will close on November 25, 2016.

European Parliament Adopts Non-Binding Resolution on Building a Capital Markets Union (CMU)

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On July 9, 2015, the European Parliament announced its adoption of a non-binding resolution stating that the building blocks for a fully functional CMU should be in place no later than 2018. The Parliament calls on the European Commission to speed up its work on the action plan and put forward legislative and non-legislative proposals as soon as possible to achieve the objective of a fully integrated single EU capital market by the end of 2018.

ECON Adopts Resolution on CMU

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On June 16, 2015, the European Parliament published a press release announcing that its Economic and Monetary Affairs Committee (ECON) has adopted a resolution on the capital markets union (CMU).

The adopted resolution has not yet been published, although the press release highlights:

  • ECON wants to see a balanced approach towards the CMU, with non-bank sources of finance being developed.
  • The need for effective cross-border insolvency rules needs to be addressed.
  • Possible changes and additions to the existing regulatory regime should aim at removing entry barriers for small and medium-sized enterprises (SMEs).